07/12/2012 | By Carl Brown, Inside Housing

Sector voices fears over impact on homelessness and rental income

Fresh welfare cuts will force people out of the private rented sector, increase homelessness and put pressure on social landlords, housing experts have warned.

George Osborne on Wednesday announced the government will axe a further £3.7 billion from the welfare bill by capping the rate most working-age benefits will rise.

Increases in local housing allowance base rates, which are used to calculate housing benefit for private renters, will be capped at 1 per cent for two years from April 2014 to save £225 million a year by 2015/16.

Housing experts fear this will cause claimants’ income to fall further behind rising rent levels, making the private rented sector unaffordable in some areas.

Howard Sinclair, chief executive of homelessness charity Broadway, said: ‘It [the cap] will increase personal debt, lead to more evictions and we will see [private] landlords less likely to want to rent to people on benefit.’

Richard Lambert, chief executive of the National Landlords Association, which represents private landlords, warned the cap ‘could render private accommodation unaffordable for many tenants in receipt of housing benefit and will deter landlords from investing in much needed housing for those receiving support’.

A report published by the National Housing Federation in October estimated that private rents will increase by 6 per cent annually from 2015 as interest rates and house prices rise.

Paul Tennant, chief executive of Orbit Group, said: ‘Our customers and communities are struggling and welfare reform, including the new 1 per cent cap, will make things more challenging.’

In addition to LHA, most working-age benefits – including employment and support allowance, income support, jobseeker’s allowance and tax credits – will be also subject to a 1 per cent cap. Rises in the earnings disregarded, the amount people can earn before their welfare is reduced for the new universal credit, will also be capped at 1 per cent for two years.

The bedroom tax for social tenants with spare rooms, which comes into effect in April, is based on a percentage of rents which increase in line with an inflation-linked formula. This means the bedroom tax will increase in real terms.

Social landlords are concerned the changes will lead to increased demand for housing and could also threaten rental streams as benefit claimants’ income is squeezed.

David Orr, chief executive of the NHF warned the changes to benefits ‘could damage associations’ principal income stream, which will undermine their ability to access funding’.

Steve White, chief executive of Hyde Group, is so concerned he has asked staff to model the potential impact. He said: ‘Any real terms reduction in benefits will have an impact, not just on private tenants, but people in affordable housing as well.’

The statement did not include an expected cut to housing benefit for under-25s.

Mr Osborne said: ‘Those working in the public services, who have seen their basic pay frozen, will now see it rise by an average of 1 per cent. A similar approach of a 1 per cent rise should apply to those in receipt of benefits.’

In numbers: the autumn statement

New announcements

£3.7 billion
to be saved by cuts to benefits by 2015/16

1 per cent
cap in rise of most working-age benefits

30 per cent
of savings from welfare rise caps policy will be used to exempt ‘high rent’ areas

£10 million
of funding for LEPS to draw up strategic growth plans


£10 billion
of guarantees for new housing

£225 million
amount of funding for housing

number of homes promised through new funding

£280 million
funding for first buy loan scheme